The Small Business Administration (SBA) and Treasury have now issued guidance and released application forms for the second round of the Paycheck Protection Program (PPP2). As before, the program allows businesses to take out forgivable loans to cover payroll and related expenses that they would otherwise struggle to cover because of the effects of the pandemic. Provided they abide by the relevant guidelines, those loans will be forgiven by the federal government.
In the first instance, only community financial institutions will offer PPP2 loans, which started early this week (January 11) for first-time borrowers, and on January 13 for borrowers requiring a second PPP loan. Other lenders will be able to offer loans shortly thereafter.
As we wrote in our last update, the big news this time is that business expenses paid for out of all PPP loans are now tax-deductible, effectively amounting to an extra benefit on top of the forgiven loans. To be eligible for these new loans, you must have:
- 300 or fewer employees;
- sustained a 25% revenue loss in any respective quarter of 2020 vs. 2019; and
- have used, or will use, all first-round PPP on eligible expenses.
Another welcome development this time is that those borrowing $150,000 or less will benefit from a simplified process. Borrowers will simply sign and submit a one-page certification to the lender that details the number of employees they have been able to retain because of the loan, the total amount borrowed, and the estimated amount spent on payroll costs. As before, we continue to recommend that you open a separate operating account and retain all relevant records tracking PPP2 funds. If you previously returned all or part of your PPP1 loan, you can still apply for the difference and for the new PPP2 loan too!
SBA guidance clarified that costs eligible for loan forgiveness are not limited to payroll, rent, covered mortgage interest, and utilities. PPP2 funds are potentially forgivable if spent on additional expenses, including:
- personal protective equipment (PPE);
- modifications to facilities to comply with Covid-19 federal health and safety guidelines;
- expenditures to essential suppliers;
- operating costs, including software and cloud computing; and/or
- accounting services!
As with PPP1, however, to qualify for full loan forgiveness, borrowers must spend at least 60 percent of loan funds on payroll over a period of either 8 or 24 weeks.
In short, PPP2 is very much a continuation of the same idea as PPP1. But lessons have been learned, and the changes will be especially welcomed by those businesses now able to take advantage of the program that were not able to previously. The simplified process will also make life easier for many. We will provide another update when we know the non-community financial institutions’ date to start accepting applications. Funds are available on a first-come, first-serve basis until March 31 or until the $284 billion in PPP2 funds run out. In the meantime, whether you are a client of ours or not, we are here to help all business owners and entrepreneurs navigate their options during these challenging times.
Stay safe and healthy,
The CJBS Team